Introduction to VAT in Nepal
Value Added Tax (VAT) was introduced in 1997 through the Value Added Tax Act, 2052 (1995). VAT is levied on the sale, exchange, transfer, import, and export of goods and services in Nepal, except for those specified as tax-exempt. The current standard VAT rate in Nepal is 13%, with certain goods and services subject to zero-rated VAT or exemptions.
VAT-registered businesses in Nepal are required to collect VAT on their sales and remit it to the government. They are also entitled to claim input VAT credits on their purchases. To ensure proper compliance and revenue collection, the Inland Revenue Department (IRD) of Nepal has established a system of monthly VAT returns.
The VAT system in Nepal aims to:
- Enhance revenue mobilization
- Promote transparency in business transactions
- Reduce tax evasion
- Simplify the tax structure
VAT registration is mandatory for businesses with an annual turnover exceeding NPR 5 million for goods and NPR 2 million for services. Businesses below these thresholds can voluntarily register for VAT if they wish to claim input VAT credits or participate in the formal economy.
Requirements for Monthly VAT Return
VAT-registered businesses in Nepal must file monthly VAT returns, regardless of whether they have any transactions during the month. The key requirements for monthly VAT returns include:
- Timely submission: VAT returns must be filed within 25 days from the end of each Nepali calendar month.
- Accurate reporting: All taxable sales, exempt sales, zero-rated sales, and input VAT credits must be accurately reported.
- Proper documentation: Supporting documents such as sales invoices, purchase invoices, and credit/debit notes must be maintained.
- Tax payment: Any VAT liability must be paid along with the return submission.
- Use of prescribed forms: VAT returns must be filed using the official VAT return form (Form 13) provided by the IRD.
- Electronic filing: VAT returns are required to be filed electronically through the IRD’s online portal.
- Signature and certification: The VAT return must be signed by an authorized person of the business.
- Maintenance of VAT accounts: Businesses must maintain proper VAT accounts, including sales and purchase books.
- Retention of records: All VAT-related documents and records must be kept for at least 6 years.
- Reporting of zero transactions: Even if there are no transactions in a month, a nil return must be filed.
Procedure for Filing Monthly VAT Return
- Gathering of Necessary Documents
- Calculate VAT Payable or Refundable
- Access the IRD Portal
- Fill out the VAT Return Form
- Submit the return and pay any due amounts
Step 1: Gather necessary documents
To begin the VAT return filing process, collect all relevant documents for the month, including sales invoices, purchase invoices, credit notes, debit notes, and bank statements. Ensure that all transactions are properly recorded in your accounting system and VAT registers. Reconcile your sales and purchase records with the physical documents to identify any discrepancies.
Step 2: Calculate VAT payable or refundable
Using the gathered documents, calculate the total output VAT (VAT collected on sales) and input VAT (VAT paid on purchases) for the month. Determine the net VAT payable by subtracting input VAT from output VAT. If input VAT exceeds output VAT, you may be eligible for a VAT refund. Ensure that all calculations are accurate and supported by proper documentation.
Step 3: Access the IRD portal
Visit the official Inland Revenue Department website (www.ird.gov.np) and log in to your taxpayer account using your PAN and password. If you don’t have an account, you’ll need to register first. Once logged in, navigate to the VAT return filing section. Ensure that you have a stable internet connection to prevent any interruptions during the filing process.
Step 4: Fill out the VAT return form
Complete the online VAT return form (Form 13) with the calculated figures. Enter details of taxable sales, exempt sales, zero-rated sales, and input VAT credits. Double-check all entries for accuracy. The system will automatically calculate the net VAT payable or refundable based on the information provided. Review the completed form carefully before proceeding to the next step.
Step 5: Submit the return and pay any due amounts
After verifying all information, submit the VAT return electronically through the IRD portal. If there is VAT payable, make the payment through online banking or by visiting an authorized bank. Keep the acknowledgment receipt and payment confirmation for your records. If you’re eligible for a VAT refund, follow the IRD’s refund procedure as outlined in the VAT regulations.
Documents Required for VAT Return
To accurately file your monthly VAT return in Nepal, you need to prepare and maintain the following documents:
- Sales invoices: These should include all VAT invoices issued during the month, clearly showing the VAT amount charged.
- Purchase invoices: Collect all VAT invoices received for purchases made during the month.
- Credit and debit notes: Any adjustments to sales or purchases should be documented with proper credit or debit notes.
- VAT Account: A summary of all VAT transactions for the month, showing output VAT, input VAT, and the net VAT position.
- Sales register: A detailed record of all sales transactions, including date, customer name, invoice number, and VAT amount.
- Purchase register: A comprehensive list of all purchases, including supplier details, invoice numbers, and input VAT claimed.
- Bank statements: To reconcile VAT payments and receipts with your bank transactions.
- Import documents: For businesses importing goods, customs declarations and import invoices are necessary.
- Export documents: If you’re exporting goods or services, maintain proper export documentation to support zero-rated sales.
- Previous VAT returns: Keep copies of past VAT returns for reference and consistency checks.
- VAT calculation worksheets: Detailed calculations showing how you arrived at the final VAT payable or refundable amount.
- Supporting documents for exempt or zero-rated supplies: Any certificates or approvals supporting VAT exemptions or zero-ratings.
- Records of advances received or paid: Document any advance payments that affect your VAT position.
- Fixed asset register: For businesses claiming input VAT on capital goods purchases.
- VAT adjustment records: Any adjustments made to previous VAT returns should be properly documented.
VAT Return Services
Many businesses in Nepal opt to use professional VAT return services to ensure compliance and accuracy in their VAT filings. These services can be particularly beneficial for:
- Small and medium enterprises without dedicated accounting staff
- Businesses with complex VAT situations (e.g., mixed supplies, partial exemptions)
- Companies looking to minimize compliance risks and avoid penalties
Our VAT return services offer the following:
- Preparation and filing of monthly VAT returns
- Maintenance of VAT records and accounts
- Assistance with VAT refund applications
- Guidance on VAT-related issues and compliance
- Representation during VAT audits
GFCS (Green Financial Consultancy Services) provides VAT return services tailored to the needs of Nepali businesses. Our team of experienced tax professionals ensures that your VAT returns are filed accurately and on time, allowing you to focus on your core business activities.
While using VAT return services can be beneficial, it’s important to remember that the ultimate responsibility for VAT compliance lies with the business owner. Therefore, maintain open communication with your service provider and stay informed about your VAT obligations.
Time Frame for Filing Monthly VAT Return
The timely filing of VAT returns is crucial for maintaining compliance with Nepal’s tax regulations. Here’s a detailed breakdown of the timeframe for filing monthly VAT returns:
- Reporting period: VAT returns are filed on a monthly basis, covering transactions from the 1st to the last day of each Nepali calendar month.
- Due date: The VAT return must be filed within 25 days from the end of the reporting month. For example, the VAT return for the month of Shrawan (mid-July to mid-August) must be filed by the 25th of Bhadra (around September 10th).
- Fiscal year alignment: The VAT return filing schedule aligns with the Nepali fiscal year, which runs from mid-July to mid-July.
Adhering to this timeframe is essential to avoid late filing penalties and maintain good standing with the tax authorities. Businesses should implement internal processes to ensure timely preparation and submission of VAT returns.
Cost Associated with VAT Return Filing
Understanding the costs associated with VAT return filing in Nepal is important for businesses to budget appropriately. If using a tax consultant or accountant, fees typically range from NPR 3,000 to NPR 15,000 per month. Many businesses use accounting software to prepare VAT returns and Costs can range from NPR 5,000 to NPR 50,000 per year, depending on the software’s features.
Penalty costs (if applicable):
- Late filing: Up to NPR 10,000 per return.
- Incorrect filing: Up to 100% of the underpaid tax amount.
Laws and Authorities Governing VAT in Nepal
Value Added Tax in Nepal is governed by a comprehensive legal framework and administered by specific authorities. Understanding these laws and authorities is crucial for proper VAT compliance.
Key Laws:
- Value Added Tax Act, 2052 (1995): The primary legislation governing VAT in Nepal.
- Value Added Tax Rules, 2053 (1996): Provides detailed regulations for implementing the VAT Act.
- Annual Finance Act: May introduce amendments to VAT provisions each fiscal year.
Main Provisions of VAT Act:
- Section 5: Imposition of VAT
- Section 7: Registration requirements
- Section 10: Tax invoices
- Section 18: Filing of tax returns
- Section 19: Payment of tax
- Section 29: Offenses and penalties
Authorities governing VAT in Nepal
- Inland Revenue Department (IRD): The primary authority responsible for VAT administration.
- Director General of IRD: Has the authority to issue directives and clarifications on VAT matters.
- Revenue Tribunal: Handles appeals against VAT-related decisions of the IRD.
- Supreme Court of Nepal: The final appellate authority for VAT disputes.
- Ministry of Finance: Responsible for overall fiscal policy, including VAT policy formulation.
- Parliament of Nepal: Enacts and amends VAT legislation.
Businesses must stay updated with changes in VAT laws and regulations to ensure ongoing compliance. Consulting with tax professionals or directly with the IRD can help clarify any uncertainties regarding VAT obligations.
VAT Return Practices in Nepal
VAT return practices in Nepal have evolved over the years, with the government introducing various measures to streamline the process and improve compliance. Here are some key practices observed in Nepal’s VAT system:
- Electronic Filing
- Use of PAN
- Invoice-based System
- VAT Refund Process: Exporters and businesses with zero-rated supplies can claim VAT refunds, although the process can be time-consuming.
- Penalties for Non-compliance: Strict penalties are imposed for late filing, non-filing, and incorrect reporting of VAT.
- E-payment of VAT: Taxpayers are encouraged to use electronic payment methods for remitting VAT liabilities.
- VAT Withholding: Government entities and certain designated private sector companies are required to withhold VAT on their purchases.
- Mandatory VAT Registration: Businesses exceeding the VAT threshold must register within 30 days of crossing the limit.
- Record Keeping: VAT-registered businesses must maintain detailed records of their transactions for at least 6 years.
Conclusion
Key takeaways:
- VAT returns must be filed monthly within 25 days of the end of each Nepali calendar month.
- Electronic filing is mandatory, streamlining the process and reducing paperwork.
- Proper documentation and record-keeping are essential for accurate VAT reporting and potential audits.
- Businesses should consider the costs associated with VAT compliance and budget accordingly.
- Staying updated with VAT laws and regulations is crucial for ongoing compliance.
While the VAT return process can be complex, especially for businesses with diverse operations, resources are available to assist. Professional services, such as those offered by GFCS (Green Financial Consultancy Services), can assist with Monthly VAT Return Services.
FAQs
What is VAT in Nepal?
Value Added Tax (VAT) in Nepal is a consumption tax levied on the value added to goods and services at each stage of production and distribution. Introduced in 1997, VAT is charged at a standard rate of 13% on most goods and services, with certain exceptions for zero-rated and exempt supplies. VAT is administered by the Inland Revenue Department and is a significant source of government revenue in Nepal.
Who needs to register for VAT in Nepal?
VAT registration is mandatory for businesses in Nepal if their annual turnover exceeds:
NPR 5 million for goods
NPR 2 million for services
NPR 2 million for mixed supplies (both goods and services)
What happens if I miss the VAT return deadline?
If you miss the VAT return deadline in Nepal, which is 25 days from the end of each Nepali calendar month, you may face the following consequences:
Late filing penalty: Up to NPR 10,000 per return
Interest on unpaid tax: 15% per annum on the outstanding amount
Potential tax audit: Increased likelihood of being selected for a detailed tax audit
Difficulty in obtaining tax clearance certificates
Possible suspension or cancellation of VAT registration in case of repeated non-compliance
What are the penalties for late VAT Return Filing
Yes, there are penalties for late VAT return filing in Nepal:
Late filing penalty: Up to NPR 10,000 per return
Interest: 15% per annum on any unpaid tax amount
Penalty for non-filing: Up to NPR 1,000 per month of continued non-filing
Additional tax: In case of underreporting, a penalty of up to 100% of the underpaid tax amount may be imposed
How long does it take to file a VAT return?
The time required to file a VAT return in Nepal can vary depending on several factors:
For simple returns with few transactions: 30 minutes to 1 hour
For businesses with moderate transaction volumes: 2-4 hours
For complex returns or businesses with high transaction volumes: 1-2 days
Do I need to hire a professional for VAT return filing?
While it’s not mandatory to hire a professional for VAT return filing in Nepal, many businesses choose to do so for several reasons:
Ensures accuracy and compliance with complex VAT regulations
Saves time for business owners to focus on core operations
Reduces the risk of errors and potential penalties
Provides expert guidance on VAT-related issues
Helps in managing VAT audits and assessments
What is the current VAT rate in Nepal?
As of 2023, the standard VAT rate in Nepal is 13%. However, there are other categories:
Zero-rated (0%): Applies to exports and certain specified goods and services
Exempt: Certain goods and services are exempt from VAT
Special rates: Some specific items may have different rates as specified in the annual Finance Act
What documents are required for VAT registration?
For VAT registration in Nepal, you typically need to provide the following documents:
Completed VAT registration application form
PAN (Permanent Account Number) certificate
Company registration certificate
Memorandum and Articles of Association (for companies)
Partnership deed (for partnerships)
Citizenship certificates of proprietors/partners/directors
Recent photographs of proprietors/partners/directors
Rental agreement or ownership document of business premises
Bank account details
Projected turnover statement
Map showing the location of the business
Tax clearance certificate (if applicable)
How often do I need to file VAT returns?
In Nepal, VAT returns must be filed monthly. The specific requirements are:
Frequency: Every month
Due date: Within 25 days from the end of each Nepali calendar month
Reporting period: From the 1st to the last day of each Nepali month
Nil returns: Required even if there are no transactions in a month
For example, the VAT return for the month of Shrawan (mid-July to mid-August) must be filed by the 25th of Bhadra (around September 10th).